Ian Ball, chairman, CIPFA International: Exclusive Interview

Ian Ball has been on a mission to improve public sector financial management for almost 40 years. Winnie Agbonlahor gets his verdict on how far we’ve come – and how close we are to the destination

Ian Ball leads the international operation of the Chartered Institute of Public Finance and Accountancy (CIPFA) – the professional institute for people working in public finance. Ball, who helped implement a radical set of financial management reforms in the New Zealand government, says he is on a “mission to improve public sector financial management.” That sense of purpose, he says, has its roots in his upbringing: “I was brought up in a family of teachers and there was this notion that government was really important and really valuable. That’s probably part of who I am – I believe that if it’s important, it needs to be done well.”

On a mission

Ball, born and bred in New Zealand, says that during his first jobs working for the New Zealand government in the late 1960s and early 1970s, he was struck by how poorly departments were running their finances: “I could never understand why governments could get away with such poor-quality [financial] information when there was no technical reason that they wouldn’t have [better data]. It was just that the government was structured in a way that didn’t require [good financial management]. Nobody was under that kind of pressure.”

Ball sees as one of his biggest achievements the design and implementation of radical financial management reforms, delivered when he was a senior Treasury official in the late 1980s and early 1990s. New Zealand became the first country in the world to move from cash to accrual accounting, budgeting and appropriations – amidst a radical restructuring of the country’s entire economy. Once these reforms were in place, Ball wanted to “do some of those things elsewhere in the world” and set up a consultancy. For eight years he worked with governments on improving their financial management systems. But eventually he became frustrated with governments’ failure to implement proposed reforms. “We would work with middle- and senior-level public servants in different countries who were very enthusiastic and committed, understood why what we were doing was important; and then reforms would get to a higher level of public administration and to a political level, and they’d be effectively stopped.”

While working in his consultancy, Ball was chair of the Public Sector Committee of the International Federation of Accountants (IFAC) in New York, where he spearheaded the creation of International Public Sector Accounting Standards (IPSAS) – accrual-based standards used for the preparation of general purpose financial statements by governments and other public sector entities. Today, they are used by dozens of countries around the world, and regarded as supporting transparency and accountability. Then, early in 2002, he became IFAC Chief Executive Officer, moving to New York to take up this role.

Ian Ball spearheaded the creation of International Public Sector Accounting Standards (IPSAS)

The power of transparency

In New Zealand, the focus on transparent accounting has paid off. For decades, the country has been ranked among the top three least corrupt nations by Transparency International. It ran a budget surplus every year from 1994 to 2008, Ball says, “and it’s been back in surplus now for a couple of years.” Good accounting matters, he argues, because it leaves less space for corruption, whilst the transparency that come with it puts pressure on the government to manage its finances tightly.

In 1991, New Zealand became the first country to publish annual ‘whole of government’ accounts. Today, it not only publishes these accounts every year, within four months of the year’s end; it also publishes them for every month within six weeks. If, Ball says, “government makes a decision that has adverse fiscal impact, that’ll be in the newspapers within six weeks.”

Getting value for numbers

Many countries around the world, including the UK, have followed New Zealand’s example and today publish complete annual accounts on an accrual rather than a cash basis. While cash accounting only reports on money going in and out, accrual accounting also takes account of assets, such as invoices raised or received but not paid; loans or debt; and liabilities. Accrual is therefore is generally regarded as providing a more accurate picture of an organisation’s financial standing. However, Ball argues that producing accrual statements is only half the job: “You can have the whole of government accounts, but if they’re not being used for fiscal and financial management purposes then to me you’re not getting full value from them.”

Though the UK is one of the leaders worldwide in this field, Ball says it still does its budgets on a cash basis. “The UK isn’t using its accrual figures for financial management – if you go back and look in the last set of budget documents and look for any forecast accrual-based financial statements, you won’t find them. You’ll find spending – just cash outlays.” Plus, Ball argues, the accounts are published so late – around 12 months after the year they cover – that no one in the media pays any attention to them.

So in the UK the public debate is still very much shaped by cash accounting, which is, Ball says, slightly misleading. “If you just look at the debt levels, the UK’s got 65% debt to GDP and New Zealand 47%, so they look roughly similar.” The same applies to their assets, he adds, with New Zealand’s being 112% of GDP and the UK’s 80%. “Then if you look at total liabilities, which include public service pensions, you start to see a very big difference: The UK’s liabilities to GDP [ratio] is 191%, whereas New Zealand’s is 78%.” The figures leave New Zealand with a net worth of 34% of GDP, while the UK’s is -111%.

The huge difference in liabilities, Ball says, is down to the UK government’s “very large public service pension obligation.” The UK government has, he adds, “been building up an increasing liability for public service pensions, as has almost every other government during the last 25 years.” Over the same period, New Zealand “did away with defined benefit pension scheme for public servants,” which has led to that liability shrinking dramatically as a percentage of GDP.

Even though the UK liability figures are striking, there’s little pressure on the government to get them down. The main focus is on the debt, which, in turn, “encourages you to try and find ways to shift obligations off this number anywhere else, whereas in New Zealand, because the focus is on the whole set of financial statements, shifting it somewhere else isn’t a good idea.”

Ian Ball, presenting at the Global Government Finance Summit 2015 in Singapore.

Top of the class

Despite the UK’s shortcomings, Ball counts it amongst the best countries in the world for financial management – along with Canada, Australia, the United States, New Zealand, Switzerland and Sweden. These countries, Ball says, are all early adopters of accrual accounting. But, even though they all use substantially the same standards, reporting still varies. Switzerland, for example, “doesn’t report public pension obligations as a liability on their balance sheet. It’ll disclose them in the notes, but it doesn’t have them as a liability.” Ball adds that, while Switzerland “would say they report on IPSAS, I would say: ‘Not exactly’.” And then there are still many countries like Germany, which “is trying to resist the encroaching of IPSAS” and insists on reporting on a cash basis.

Nevertheless, Ball says, a lot of progress has been made: “25 years ago, no governments reported on an accrual basis. There has been a lot of change. So at the beginning of this process, countries like France, for example, said: ‘This will never happen here’, and that it was completely inconceivable that the French government would ever report on an accrual basis. Now they do.”

Ball says, a lot of progress has been made: “25 years ago, no governments reported on an accrual basis. There has been a lot of change.”

Next level

Currently, 50 countries around the world are moving to or are in the process of adopting IPSAS, Ball says. “Increasingly, and more recently, countries like Estonia have implemented IPSAS as part of an attempt to get their financial management under sufficient control that they can qualify for the Eurozone.” All these factors make for a promising trend. Whether countries will use accrual accounting to manage their finances as tightly as New Zealand depends on whether their systems are up to the task and how transparent governments want to be, Ball says.

The next step, he says, will be to achieve “clear specification of performance” – something “very commonly missing” in public sectors around the world. “Defining clearly what the services are that government organisations produce and knowing what it costs to produce them is very poorly done globally.” Though this is something the 1989 reforms tried to address in New Zealand, Ball says, though “it’s by no means perfect” there either.

To try to get departments to specify the nature, costs and results of their services, Ball argues, “you have to play a mind game with them, which is basically saying: ‘Imagine that your department no longer existed and the government wanted to buy the services you produce from a private sector provider. What would you put in the contract? What would be the set of services that you’d be contracting for?.” It’s a complex process – but in Ball’s view, this information is needed to coherently manage performance.

His ideal scenario involves governments around the world moving to a common set of accounting standards, so their revenues and spending can be easily compared. This, he says, would “create incentives for them to try and manage their own finances better.” Plus, he adds: “Where resources are allocated in the economy is really important to how well it will perform, and you want investment to go to those places that use it best. Capital markets don’t work unless people have got good information.” How far are we from this vision for the G20 community? “I think in 20 years, maybe even less, we should be in a position to say of all G20 countries: ‘This is what their balance sheets actually look like’,” he replies. “That will be fantastic.”

About Winnie Agbonlahor

Winnie is news editor of Global Government Forum. She previously reported for Civil Service World - the trade magazine for senior UK government officials. Originally from Germany, Winnie first came to the UK in 2006 to study a BA in Journalism & Russian at the University of Sheffield. She is bilingual in English and German, and, after spending an academic year abroad in Russia and reporting for the Moscow Times, Winnie also speaks Russian fluently.

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